Starting January 22, 2024, federal corporations in Canada must disclose information about their individuals with significant control ("ISC") to improve corporate transparency. This requirement, established through Bill C-42, received assent on November 2, 2023. Previously, federal corporations were required to maintain a private register of individuals with significant control since 2019. However, under the new Canada Business Corporations Act ("CBCA") requirement, this information must now be filed with Corporations Canada, making it publicly accessible.
WHO IS AN INDIVIDUAL WITH SIGNIFICANT CONTROL?
An individual with significant control is someone who:
- Holds, whether as a registered holder or beneficial owner, at least 25% of the voting rights of a corporation or 25% of the value of the outstanding shares of the corporation measured by fair market value; or
- Has an influence that, if exercised, would result in the effective control of the corporation.
Additionally, two or more individuals jointly holding shares under the circumstances described above (including by right/interest or a combination of rights subject to any agreement or arrangement) are each considered individuals with significant control. An individual can qualify as an ISC even if they hold an indirect interest, such as through a trust.
WHICH ENTITIES ARE EXEMPTED FROM THE PROVISIONS OF THE ACT?
The CBCA ISC requirements do not apply to:
- Reporting issuers;
- Corporations listed on a designated stock exchange as defined in subsection 248(1) of the Income Tax Act, such as the Toronto Stock Exchange; or
- Entities exempted by regulations, such as crown corporations and wholly owned subsidiaries of a reporting issuer, listed corporations, and crown corporations.
WHAT INFORMATION MUST BE INCLUDED IN AN ISC REGISTER?
The following information regarding each individual with significant control must be maintained in Canada and disclosed to Corporations Canada:
- Name and date of birth
- Residential address and address for service, if provided
- Citizenship
- Date of becoming or ceasing to be an individual with significant control
- Description of each individual's interest
- Tax residence
- The steps taken to verify the information contained in the register
- Any other information as may be prescribed
WHAT IS THE ISC INFORMATION USED FOR?
Public Disclosure: The CBCA empowers the director appointed under the CBCA (the "Director") to make available to the public specific ISC information, such as the name; address for service (if provided to the corporation); residential address (if no service address has been provided to the corporation); date of becoming or ceasing to be an individual with significant control; and any other prescribed information.
Disclosure to Investigative Bodies: Each corporation is obligated, upon request, to disclose to investigative bodies a copy of the corporation's register of individuals with significant control or specific information contained in the register. Investigative bodies that may request this information include any police force, the Canada Revenue Agency (including similar provincial tax agencies), and any prescribed body that can investigate offences listed in the schedule, such as under the Cannabis Act, Customs Act, Controlled Drugs and Substances Act, and Criminal Code, among others.
Disclosure to Corporate Registries: The Director may provide ISC Information to corporate registries or any agency responsible for corporate law in a province, investigative bodies, the Financial Transactions and Reports Analysis Centre of Canada or any prescribed entity.
WHAT PROTECTIONS ARE AVAILABLE?
- If a service address has been provided, Corporations Canada will not make the ISC's residential address public, even though the information is filed.
- Information regarding individuals under 18 years of age will not be made public, though it is filed online.
- An ISC or the corporation may apply to the Director to restrict public access to any ISC information on specific grounds. The Director may exempt information from disclosure if the Director is satisfied that disclosing it would pose a serious threat to the individual's security, if the individual is incapable, if it must be kept confidential under the Conflict of Interest Act or any similar law, or if other circumstances prescribed by regulations apply. The Director is required to publish any exemptions granted.
WHAT ARE THE TIMELINES AND IMPLICATIONS OF NON-COMPLIANCE?
Timelines:
- Existing federal corporations must confirm that their ISC register is up-to-date at least once during each financial year. To fulfil this requirement ISC information is filed with the Director annually, at the same time as the corporation's annual return (within 60 days after its anniversary date), and within 15 days of any change.
- ISC information is also required during incorporation, amalgamation, or continuance of a federal business.
Non-compliance:
- The Director may dissolve a corporation or refuse to issue a certificate of existence or compliance to a corporation that has not complied with the ISC filing requirement.
- Corporations, shareholders, and every director or officer of the corporation may be liable under the CBCA to fines and, where applicable, imprisonment for various ISC contraventions.
Key penalties include:
- Directors and Officers: Up to $1 million fine or 5 years imprisonment (or both) for recording misleading information in the ISC register, providing false information relating to the ISC register and for failing to maintain or update the ISC register, file ISC information, or disclose ISC information to investigative bodies.
- Shareholders: Up to $1 million fine or 5 years imprisonment (or both) for providing false or failing to provide required ISC information to the corporation.
- Corporations: Up to $100,000 fine for failing to submit ISC information or updates to Corporations Canada, and up to $5,000 fine for failing to provide ISC information to an investigative body, without reasonable cause.
ACTION REQUIRED
- Given the significant consequences of non-compliance with the new ISC requirements under the CBCA, non-exempt federal businesses must prioritize maintaining their ISC registers and filing required ISC information with Corporations Canada within the applicable timelines.
- Federal businesses that do not have any ISCs, considering that no single individual or joint shareholder controls up to 25% of the voting rights in the corporation or has an influence that would, if exercised, result in the effective control of the corporation, are still required to file a statement confirming that there are no ISCs in the corporation and outlining the steps taken to identify these individuals.
- To maintain privacy, businesses concerned about publicly disclosing their residential addresses can provide an alternate service address. Additionally, businesses with security concerns, those seeking to protect incapable individuals, or those wishing to maintain confidentiality based on a conflict of interest legislation (for reporting public office holders) may apply to the Director for an exemption from public disclosure of their ISC information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.